HE 
2791 

C3 
D595 


DOYL' 


CALIFORNIA 


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F.  G.  BANBURY,  Esq.,  M.  P„ 

Chairman  of  Committee  of  Stockholders,  and 

WALTER  MORSHEAD,  Esq., 

Acting  Chairman  of  Stockholders'  Protection  Committee, 

Both  of  the  Central  Pacific  Railroad  Company. 

Dear  Sirs:  You  and  your  constituents  are  interested  in  the  Cen- 
tral Pacific  R.  R.  Company  as  shareholders:  the  people  of  California 
are  interested  in  it  as  having  to  furnish  the  means  to  pay  the  interest 
on  its  debts  and  dividends  to  its  stockholders,  if  they  receive  such. 
The  more  you  have  to  pay  for  interest,  the  more  we  have  to  pay  for 
transportation;  hence  our  interest  in  keeping  down  your  debt  and 
consequent  fixed  charges  is  identical  with  your  own.  The  object  of 
this  communication  is  to  point  out  how  in  the  reorganization  of  your 
company,  now  imminent,  you  may  save  the  interest  on  several  mill- 
ions, and  avoid  liability  for  more,  and  the  apology  for  it  is  the  identity 
of  interest  above  indicated. 

That  railroad  conditions,  utility,  value,  etc.,  are  largely  determined 
by  topography  is  common  knowledge.  California  is  a  mountain 
State,  with  one  immense  central  valley  (that  of  the  Sacramento  and 
San  Joaquin  rivers),  and  several  smaller  ones  of  varying  extent  and 
importance,  but  all  of  great  fertility  and  productiveness.  There  is 
published  a  relief  map  of  the  State,  which  should  be  procurable  in 
England,  and  from  which  the  importance  of  this  peculiarity  will  be 
manifest  at  a  glance.  Accurate  topographical  maps  of  the  great  valley 
of  California,  showing  boundaries,  areas,  etc.,  with  elevations  by  con- 
tour lines,  can  also  be  had  for  small  cost.  The  State  Railroad  Commis- 
sioners have  also  published  an  outline  map  of  the  State  from  which, 
and  their  annual  reports,  some  little  useful  information  may  be 
gleaned. 

Of  all  the  State  north  of  Tehachapi,  San  Francisco  is  the  natural 
commercial  center;  the  waters  all  seek  the  sea  here,  those  of  the  great 
valley  first  mentioned,  which  between  the  Sierra  Nevada  on  the  N.  E. 
and  the  Coast  Range  on  the  S.  W.  extends  diagonally  through  five 
degrees  of  latitude,  break  through  the  latter  range  at  the  Straits  of 
Carquinez,  without  leaving  room  for  a  railroad  track  on  either  side, 
unless  it  be  shelved  out  of  the  mountain;  and  even  this  can  only  be 
done  advantageously  on  the  south  side  of  the  strait.  The  most 
important  of  the  smaller  valleys  are  those  of  the  Santa  Clara,  Sonoma, 
Napa,  Petaluma  and  Suisun,  which  also  deliver  their  waters  at  the 
same  point. 

What  is  now  the  Central  Pacific  Railroad  was  built  in  a  somewhat 
haphazard  way,  i.  e.,  in  separate  portions  and  by  different  companies 
that  were  subsequently  consolidated.  Its  location  was  made  in 
advance  of  thorough  surveys,  and  in  part,  at  least,  determined  by 
considerations  of  subsidy  to  be  obtained  by  its  construction.     Sacra- 


mento  having  water  communication  with  San  Francisco  and  so  with 
the  rest  of  the  State,  was  selected  as  its  western  terminus,  and  there 
its  construction  commenced.  A  right  to  build  from  that  point  to  San 
Francisco  via.  Stockton  and  San  Jose,  was  claimed  by  the  Central 
Pacific  Company,  and  by  it  assigned  to  two  other  companies,  by  one 
of  which  called  the  Western  Pacific  Company,  an  extension  of  the 
Central  Pacific  road  was  built  via.  Stockton  and  Livermore  as  far  as 
San  Jose.  This  "  Western  Pacific  Railroad  "  was  afterwards  consoli- 
dated with  the  C.  P.  road,  but  its  debts  remain  separate,  and  must  be 
treated  separately. 

The  great  valley  of  California  is  closed  at  its  south  easterly  end  by 
a  junction  of  the  Sierra  Nevada  and  Coast  Range,  called  the  Tehachapi 
Mountains,  the  pass  over  which  is  steep,  and,  at  its  lowest  point,  4,000 
feet  high;  South  of  this  the  country  changes  climate  and  character, 
becoming  semi-tropical;  its  center  of  population  is  Los  Angeles,  and 
its  hai:bor  San  Diego.  The  two  places  are  however  some  eighty  miles 
apart,  and  the  narrow  intervening  country  has  usually  a  scanty  rain- 
fall and  needs  irrigation  to  develop  it  properly  for  cultivation. 
Congress  has  ordered  a  harbor  constructed  at  San  Pedro,  for  Los 
Angeles,  which  will  be  completed  in  a  few  years,  and  dispose  of  the 
southern  railroad  problem.     It  does  not  concern  us  here. 

It  will  thus  be  seen  that  the  railroad  system  of  our  Pacific  Coast 
is  divided  in  two,  by  the  Tehachapi  Range.  All  south  of  that  centers 
at  Los  Angeles;  all  north  of  it,  as  far  as  the  Oregon  line,  at  San 
Francisco.  This  latter  portion  comprises  all  the  roads,  great  and 
small,  in  which  the  Central  Pacific  Company  has  any  interest.  Leav- 
ing out  of  view  some  petty  branches  of  no  importance,  these  are  as 
follows: 

1.  The  Central  Pacific  main  road  from  Sacramento  to  Ogden, 
732-1/2  miles  long. 

2.  The  Western  Pacific  from  Brighton,  near  Sacramento,  to  San 
Jose,  120  miles  long. 

3.  The  California  and  Oregon  road,  from  Roseville  Junction  to  the 
Oregon  State  line,  296-1/2  miles  long. 

4.  The  San  Joaquin  Valley  division  of  the  Central  Pacific  road, 
running  from  Lathrop  to  Goshen,  150  miles  long. 

5.  Some  minor  branch  roads,  really  unimportant,  taken  together 
say  50  miles  long. 

The  two  first  above  mentioned  were  aided  by  the  U.  S.  Govern- 
ment and  are  separately  indebted  to  it,  in  the  several  amounts  of  their 
respective  subsidies,  with  thirty  years  interest  thereon.  Each  of  them 
besides  owes  bonds  for  an  amount  equal  to  the  principal  of  its  debt  to 
the  government  secured  by  what  is  called  a  "first  mortgage"  on  their 
respective  roads,  each  of  the  others  named  (3,  4  and  5),  is  also 
separately  mortgaged  for  the  payment  of  a  separate  issue  of  bonds. 
They  must  therefore  be  considered  separately. 

The  proposal  to  include  all  the  debts  of  the  company  in  one 
blanket  mortgage  for  a  hundred  million  dollars,  is  a  natural  one 
from  Mr.  Huntington,  for  he  is  the  surviving  member  of  the  com- 
bination that  contracted  these  various  debts,  the  non-payment  of 
any  part  of  which  must  naturally  reflect  more  or  less  on  him,  and 
tend  to  curtail  his  power  to  obtain  future  loans;  but  that  does  not 
concern  us. 
I  take  the  roads  and  their  several  debts  in  the  following  order. 


I.     Central   Pacific   Road   from    Sacramento  to   Ogden,   732-1/2 
miles.     The  debt  due  on  this  is  as  follows: 

First  Mortgage  bonds  (Ser.  A,  B,  C,  D,  E,  F,  G,  H,  &  I)  .*$25,885,120 
Against  these  stands  a  sinking  fund  of .  .  . 6,683,886 


Leaving  to  provide  for  (Rep.  1897,  p.  94) $19,198,114 

Government  bonds,  6  per  cent $25,882,000 

Thirty  years'  interest $46,587,600 

Less  sinking  fund  in  U.  S. 
Treasury 15,888,744      30,698,856      56,580,856 


Total. $75,779,000 

This  amount  is  liable  to  be  varied  slightly  by  differences  in  the 
figures  of  the  company's  officers  and  those  of  the  government.  It  is 
however  substantially  correct. 

IL  Western  Pacific  Railroad  from  Brighton  to  San  Jose,  120 
miles.  V. 

^'First  mortgage  bonds" $1,970,000 

Against  which  and  other  bonds  amounting  to  $765,000 
stands  af  sinking  fund,  of  which  the  proportion  corre- 
sponding to  these  would  be 307,136 


Leaving  to  be  provided  for $1,662,864 

Government  bonds,  (6  per  cent.) $1,970,000 

Interest  30  years 3,546,000 

5,516,000 


Total  bonded  debt $7,178,864 

The  road  is  obviously  not  worth  one-half — probably  not  more  than 
a  third — of  the  amount  for  which  it  is  encumbered.  It  is  not  used  for 
passenger  traffic  except  the  trivial  local  transit  along  its  line.  Its- 
utility  consists  in  connecting  the  valley  of  the  Santa  Clara  with  that 
of  the  San  Joaquin  and  Sacramento  and  giving  to  the  former  a  con- 
nection by  rail  with  the  Central  and  Southern  Pacific  roads,  for  the 
transportation  of  its  products  overland.  Its  passenger  earnings  must 
always  remain  insignificant  and  those  from  freight  be  confined  to  the 
through  freight  indicated  above. 

III.  The  California  and  Oregon  Railroad  between  Roseville  Junc- 
tion and  the  State  line,  296-1/2  miles. 

First  mortgage  bonds  (6  per  cent.) $10,340,000 

No  particulars  are  given  in  the  reports  as  to  any  sinking  fund,  but 
the  above  is  stated  in  the  report  of  December  1st,  1888,  as  the  amount 
of  bonds  outstanding.  It  is  plain  that  this  road  is  not  worth  nearly 
the  amount  of  its  debt;  its  earnings  cannot  be  ascertained  but  as  its 

"But  see  report  of  Company  to  State  Kailroad  Commission,  1886,  p.  253,  where 
the  Government  issue  is  given  at  this  amount,  and  on  p.  251,  the  first  mortgage  bonds 
are  stated  at  |25,883.000. 

tThis  is  December  31st,  1897,  the  latest  I  have  found  published;  it  is  probably  all 
mixed  in  with  and  included  in  the  0.  P.  sinking  fund  above. 


connecting  road  north  (the  Oregon  &  California),  confessedly  went 
behind  $1,564,835  in  the  eighteen  months  ending  June  30,  1897,  it  is 
not  easy  to  believe  that  this  is  anything  but  a  losing  concern. 

IV.  The  San  Joaquin  Valley  Road  from  Lathrop  to  Goshen,  152 
miles. 

First  mortgage  bonds  (6  per  cent.) $6,080,000 

Against  which  is  held  a  sinking  fund  of 1,488,842 

Leaving  it  responsible  for $4,591,158 

This  road  was  originally  a  valuable  one,  but  the  managers,  acting 
in  the  Southern  Pacific  interest,  paralleled  it  on  either  side,  and  the 
Valley  Road  having  been  built  to  compete  for  the  same  traffic  its 
value  has  been  about  destroyed.  It  could  not  be  probably  sold  to-day 
for  one-third  of  its  mortgage  debt. 

In  the  above  calculations  I  have  assumed  that  the  various  sinking 
funds  could  be  made  to  produce  the  sums  they  represent  respectively; 
I  do  not  believe  they  could  in  fact  be  sold  for  half  these  sums  respect- 
ively. My  hope  of  getting  paid  that  of  the  Central  Pacific  main  line 
is  based  on  the  interest  of  the  U.  S.  Government  (with  which  Mr. 
Huntington  wants  to  stand  well  )in  compelling  its  production. 

The  facts  and  figures  given  above  point  out  the  lines  on  which  the 
C.  P.  Railroad  Company  should  be  reorganized  in  the  interest  of  its 
stockholders.  Its  mortgage  debts  aggregate  after  deducting  sinking 
funds,  over  a  hundred  million  dollars.  To  pay  interest  on  this  sum 
and  a  dividend  of  two  per  cent  on  its  stock  of  $67,275,500  would  re- 
quire the  road  to  earn  $5,350,000  per  annum  over  all  expenses,  inclu- 
ding sinking  fund.  Can  it  do  this?  Managed  by  its  owners,  and 
solely  in  their  interest,  I  suppose  it  could,  though  that  is  perhaps 
doubtful.  Mr.  Huntington's  annual  reports  of  the  Southern  Pacific 
Company,  which  ought  to  contain  the  information  needed  to  solve  this 
question,  throw  no  light  on  it.  Managed  by  Mr.  Huntington  and  the 
Southern  Pacific  Company,  it  is  certain  that  it  will  not,  for  he  and 
it  are  loaded  down  with  the  Southern  Pacific  Railroad  debts,  as  well 
as  those  of  the  connecting  lines  to  New  Orleans  and  New  York,  etc., 
amounting  in  the  aggregate  to  no  less  than  $146,917,051  (Rep.  of  '97, 
p.  40),  and  calling  for  an  annual  interest  of  $8,106,730;  besides  which 
the  object  being  to  sell  the  Southern  Pacific  Railroad  Company's 
stock  and  repeat  the  fraud  of  the  sales  of  the  Central  (with  varia- 
tions), that  road  must  be  made  by  some  means  or  other  to  pay  divi- 
dends. Entrusted  then  to  Southern  Pacific  management  whether 
under  the  form  of  a  lease  or  otherwise,  the  stockholders  of  the  Central 
Pacific  must  look  forward  to  seeing  the  interests  of  their  road  sacri- 
ficed at  eveiy  point  to  those  of  the  Southern  Pacific.  This  result  is  so 
plainly  on  the  surface  as  to  need  no  argument;  the  whole  overland 
system  will  be  operated  in  the  interest  of  the  Southern  Pacific  road. 
It  will  get  all  the  through  freight,  and  as  much  of  the  local  as  can 
possibly  be  diverted  from  the  Central.  The  roadbed  and  equipment 
of  the  latter  will  be  allowed  to  dilapidate  and  wear  out,  so  that  when 
finally  surrendered  to  its  owners,  it  will,  in  fact,  consist  of  little  more 
than  the  ^'two  streaks  of  rust  and  right  of  way,"  once  prognosed  for 
it  by  its  late  Superintendent.  Rent  or  dividends  (which  ever  they 
may  be  called),  will  be  largely  taken  out  of  what  should  constitute  a 
maintenance  and  repair  fund. 


These  and  many  other  reasons  concur  in  producing  the  conviction 
that  the  first  condition  of  any  reorganization  of  the  Central  Pacific 
Road  in  the  interest  of  the  stockholders  should  be  the  elimination  of 
Mr.  Huntington  and  the  Southern  Pacific  Company. 

What  course  should  be  recommended  to  the  stockholders  of  the 
Central  Pacific  Company,  in  view  of  all  the  circumstances,  and  bear- 
ing in  mind  that  the  bulk  of  them  reside  abroad,  and  must  of  necessity 
entrust  the  practical  management  of  the  road  to  a  local  board  of 
directors  ? 

ANSWER. 

I  think  the  first  thing  needed  is  to  get  rid  of  the  present  board  of 
directors.  All  of  them  except  Messrs.  Eells,  Grant  and  Bretherton, 
are,  or  have  been,  Huntington's  nominees,  and  can  never  be  relied  on 
to  act  against  him  in  any  contest,  or  to  keep  any  secret  from  him. 
Their  election  was  evidently  a  mistake,  and  as  the  obnoxious  members 
gave  pledges  when  elected  to  be  governed,  in  their  management,  by 
the  wishes  of  the  Banbury  Committee,  they  would  probably  resign  if 
requested  by  that  body.  While  they  remain  in  office,  it  is  impossible 
to  consider  or  discuss  any  step  towards  reorganization,  contest  or  com- 
promise, without  its  being  made  known  to  Huntington,  and  frustrated 
or  evaded  by  him  if  he  desires  to.  Perhaps  the  gentlemen  may 
decline  to  resign  on  request,  in  which  case  another  study  will  be 
necessary,  as  to  getting  rid  of  them;  but  for  the  present  purpose,  I 
assume  that  they  can  and  will  be  got  rid  of,  and  with  them  should  go 
the  president,  secretary  and  all  other  confidential  officers  who  must 
be  aware  of  the  deliberations  and  decisions  of  the  board  of  directors. 

Having  thus  secured  privacy  in  your  consultations,  and  made 
manifest  to  the  subordinate  employees  of  the  company,  that  Mr.  Hun- 
tington is  no  longer  their  master,  and  that  they  may  even  safely  dis- 
close what  they  know  of  his  acts,  an  able,  acute  and  well  instructed 
agent  should  be  sent  to  Washington,  to  attend  to  the  negotiation  with 
the  government  commission  as  to  the  determination  of  the  amount  of 
the  debts  due  the  United  States,  the  set-offs,  and  deductions  to  which 
the  company  may  be  entitled  and  the  amount  of  the  sinking  fund,  etc. 
In  arranging  this  the  debt  of  the  Central  Pacific  road,  proper,  should  he 
kept  entirely  distinct  from  that  of  the  Western  Pacific,  and  each  ascer- 
tained with  its  proper  sinking  fund  and  set-offs,  separately.  Properly 
done  this  will  result  in  applying  the  bulk  of  the  credits  to  the  debt  of 
the  C.  P.  Co.  because  they  were  earned  by  that  road,  in  overland 
transportation.  As  the  negotiation  will  probably  proceed  on  the 
assumption  that  the  government  lien  is  subordinate  to  that  of  the 
"  first  mortgage,"  the  U.  S.  will  have  a  direct  interest  in  the  appli- 
cation of  the  "  first  mortgage  sinking  fund  "  to  the  reduction  of  that 
lien,  and  Mr.  Huntington  will  be  much  more  likely  to  find  a  way  to 
replace  the  "  seclirities  "  that  constitute  that  fund,  if  called  on  by  the 
government,  than  he  would  at  the  demand,  to  the  same  effect  by  the 
company,  or  its  stockholders. 

Meantime  an  examination  as  complete  as  practicable  should  be 
instituted  as  to  the  earning  power  and  actual  value  of  the  C.  P.  branch 
roads,  viz:  the  Western  Pacific  (II),  that  between  Roseville  Junction 
and  the  State  line  (III),  that  between  Lathrop  and  Goshen  (IV).  I  have 
myself  no  doubt  that  none  of  them  is  earning  or  capable  of  earning 
half  the  interest  on  the  load  it  is  carrying.  The  records  of  the  oflfice 
of  the  company  must  show  this  accurately.     Assuming,  however,  that 


6 

they  will  all  be  found  in  the  same  category  of  greater  or  less  worth- 
lessness,  my  suggestion  would  be  to  abandon  them  to  the  bondholders, 
and  wipe  out  your  liability  for  the  twenty-four  millions  or  so  of  debt 
they  represent.  Sold  at  foreclosure  sales  you  will  be  able  to  buy  them 
practically  at  your  own  price.  Having  become,  or  in  anticipation  of 
becoming,  owners  of  the  Central  Pacific  main  line  from  Sacramento  to 
Ogden,  traffic  arrangements  should  be  made  for  transportation  of 
freight  and  passengers  between  Stockton  and  San  Francisco  with  the 
San  Francisco  and  San  Joaquin  Valley  road,  of  the  practicability  of 
which,  on  fair  and  favorable  terms,  you  can  probably  be  assured  in 
advance,  for  that  road  was  built  expressly  to  give  relief  to  the  interior 
of  the  State  and  the  City  of  San  Francisco  from  the  oppressive 
charges  and  discriminations  of  the  Southern  Pacific  Cempany,  under 
Mr.  Huntington's  regime.  Your  road  will  afford  to  it  a  direct  over- 
land connection  with  the  great  Northwest,  which  is  the  great  consumer 
of  California's  special  products — wool,  wine,  lumber,  meat,  fruits,  oils, 
sugar,  metals,  hides,  leather,  hops,  beans,  fish,  coffee,  tea  and  other 
Chinese  and  Japanese  goods — and  it  will  give  you  a  direct  connection 
with  San  Francisco  and  the  whole  Pacific  Coast.  The  gap  of  forty- 
two  miles  between  Brighton  Junction  and  Stockton  runs  through  a 
rich,  level,  agricultural  country  which  will  yield  sufficient  local  freight 
to  support  a  road,  so  that  either  company  can  afford  to  build  it,  and 
its  cost  will  be  but  trifling. 

The  Valley  Road  has  terminals  in  San  Francisco,  and  a  tide-water 
connection  at  Point  Richmond,  for  the  shipment  of  grain,  etc.,  abroad, 
and  ferry  to  San  Francisco,  equal  if  not  superior  to  those  of  the 
Southern  Pacific  at  Port  Costa,  so  that  the  alliance  between  it  and 
the  Central  Pacific,  reorganized,  is  a  healthy  aad  natural  one  benefi- 
cial to  both  parties,  and  to  the  country  they  serve.  This  is  the  best 
basis  for  an  alliance,  and  will  enable  the  Central  Pacific  owners  to 
dispense  with  all  anxiety  as  to  their  local  managers,  for  the  interests 
of  the  two  roads  will  be  identical;  it  will  be  impossible  to  benefit  one 
without  serving  the  other,  and  the  combined  roads  will  have  the  good 
will  of  the  people  of  the  State,  which  they  will  have  the  credit  of  res- 
cuing from  the  grasp  of  the  Southern  Pacific  monopoly. 

To  carry  out  this  project  will  require  the  formation  of  a  new  com- 
pany, the  stock  of  which  should  be  issued  to  the  Central  Pacific  stock- 
holders, against  an  assignment  of  their  Central  Pacific  shares;  and 
the  purchase  under  the  government  foreclosure  of  the  Central  Pacific 
road  with  its  rolling  and  floating  stock,  and  all  else  included  in  the 
first  and  government  mortgages.  This  new  concern,  which  for  brevity 
I  will  call  the  Pacific  Central,  or  P.  C  Co.,  would  thus  begin  business 
owning  the  road  from  Sacramento  to  Ogden,  with  its  equipment  com- 
plete, against  which  it  would  assume  the  payment  of  seventy-six 
million  dollars,  at  most. 

-  The  old  Central  Pacific  Company  should  assign  to  it  all  its  rights 
of  property  and  in  action,  either  directly  or  through  the  medium  of 
bankruptcy  proceedings,  and  be  relegated  to  obscurity,  while  the  new 
P.  C.  Co.  would  take  its  place,  disburthened  of  its  debts,  and  its 
fatal  entanglements  with  the  Southern  Pacific. 

An  additional  reason  for  a  new  company  to  take  the  place  of  the 
Central  Pacific  is  that  the  latter  is  probably  subject  to  obligations  and 
engagements  of  unknown  magnitude  and  character,  which  it  would  be 
unsafe  to  assume  on  reorganization.     I  can  point  out  ten  millions  of 


I 


these  obligations  formerly  mentioned  in  the  company's  annual  reports, 
though  omitted  from  those  of  the  last  six  years.  How  many  and  what 
other  guaranties  and  what  traffic  agreements,  have  been  created  while 
Mr.  Huntington  had  a  free  hand  with  the  company's  property,  it  is 
impossible  to  tell  and  unsafe  to  guess.  To  undertake  to  patch  up  the 
old  concern,  and  carry  it  on  as  the  Central  Pacific  Railroad  Company 
would  be  to  assume,  blindfold,  this  whole  unknown  burthen  besides 
the  $24,000,000  of  additional  debt  now  oppressing  you  and  which  I 
propose  to  wipe  out  with  the  ten  million  dollars  guaranty  last  referred 
to.  You  can  undoubtedly  buy  the  three  branch  roads  above  designated 
as  II,  III,  and  IV  practically  at  your  own  price,  if  you  desire  them, 
because  no  other  road  wants  or  could  use  them  to  any  advantage. 

Objection  may  be  made  to  the  course  here  proposed  on  sentimen- 
tal grounds.  Mr.  Huntington  will  say  it  savours  of  repudiation.  I 
think,  however,  that  the  objection  properly  considered,  need  have  no 
weight  with  you.  The  company  was  looted  by  its  trusted  agents, 
Huntington  &  Co.,  who  in  its  name  purchased  from  themselves,  at 
enormously  inflated  prices,  property  on  which  they  in  effect  took  a 
mortgage  for  the  purchase  price.  Subsequently  they  induced  a 
number  of  confiding  persons  to  purchase  the  stock,  which  represented 
the  equity  of  redemption  of  this  property.  Now  he  will,  of  course 
put  on  an  air  of  lofty  virtue,  because  the  victims  of  the  later  fraud 
elect  rather  to  lose  what  they  have  already  paid,  than  to  pay  more  for 
the  purpose  of  redeeming  such  a  worthless  piece  of  property.  Who  is 
discredited,  or  disgraced  in  such  a  case?  Those  who  borrowed  the 
money  and  issued  the  obligation  to  pay  it,  or  those  on  whom  they 
afterwards  palmed  off  the  mortgaged  premises  as  a  valuable  property 
when  it  was  in  fact  worthless?  If  Mr.  Huntington  or  his  associates 
feel  aggrieved  that  you  decline  to  pay  any  debts  which  they  contracted, 
there  is  nothing  to  hinder  them  from  paying  them  themselves  and 
being  subrogated  to  the  rights  of  the  creditors. 

In  effect  the  discredit  which  the  proved  worthlessness  of  these 
bonds  of  the  branch  roads  with  its  attendant  exposure  of  Mr.  Hun- 
tington's financial  methods  will  be  one  of  collateral  advantages  to  be 
derived  from  the  course  I  propose.  For  if  Wall  Street  once  witnessed 
the  practical  demonstration  that  bonds  of  the  Western  Pacific,  the  C. 
P.  Oregon  division,  and  the  San  Joaquin  Valley  division  of  the  Cen- 
tral Pacific  road,  all  foisted  on  the  street  by  Huntington's  devices,  are 
of  little  or  no  value,  and  that  the  market  for  them  was  sustained  by 
bleeding  the  main  stem  of  the  Central  Pacific  road  to  pay  their  interest, 
it  will  presently  be  moved  to  enquire  as  to  the  intrinsic  value  of  the 
Southern  Pacific  securities  now  seeking  a  market;  and  whenever  that 
enquiry  is  seriously  undertaken  there  cannot  fail  to  be  a  general  col- 
lapse of  the  whole  bubble  of  Mr.  Huntington's  corporate  credit. 

In  fact  I  think  there  is  little  doubt  that  a  powerful  motive  for  Mr. 
Huntington's  persistent  intervention  in  the  affairs  of  the  C.  P.  Co.  and 
in  the  arrangement  of  its  debt  to  the  Government  is  his  fear  lest  the 
stockholders  managing  their  own  business  should  perceive  the  advan- 
tage of  throwing  overboard  these  useless  branch  roads  and  saving  the 
money  their  purchase  would  entail.  He  would  desire  of  all  things  to 
have  the  company  reorganized  on  the  basis  of  taking  all  the  old  prop- 
erty and  assuming  all  the  old  debts,  engagements  and  contracts.  If 
that  were  done,  it  could  never  hope  for  emancipation  from  his  grasp. 
He  could  at  any  time,  by  making  default  in  the  interest  of  the  bonds 


guaranteed  by  the  C.  P.  Co.,  start  a  sudden  call  on  it  for  ten  million 
dollars  under  its  guaranty  of  those  obligations.  To  provide  for  the 
interest  on  the  Western  Pacific  bonds  and  those  of  the  Oregon  and 
San  Joaquin  Valley  branches  he  could  keep  it  in  an  enduring  bond- 
age to  himself  and  perpetuate  his  control  over  it. 

There  are  many  other  reasons  why  a  new  incorporation  to  take 
the  place  of  the  present  company  will  be  a  necessary  step  in  reorgan- 
ization. As  for  example  the  existence  of  the  fifty  year  bonds  of  1886 
and  1889,  amounting  to  $12,339,000.  I  am  unable  to  learn  what  the 
company  ever  received  for  these  bonds,  but  I  believe  they  are  secured 
by  a  mortgage  on  the  lands  granted  to  the  Western  Pacific  Company 
by  the  State  ^^for  terminal  purposes^  The  bonds  have  never  made 
their  appearance  on  the  stock  exchange,  have  no  quotable  price  and 
are,  I  have  no  doubt,  still  in  first  hands;  i.  e.,  the  hands  of  one  of  the 
numerous  corporate  bodies,  under  the  names  of  which  Mr.  Huntington 
does  business.  The  lands  in  question  have  never  been  used  for 
terminal  or,  I  believe,  for  any  purposes  by  the  company,  and  having 
been  granted  specifically  for  a  particular  use,  and  belonging  to  the 
class  of  property  passed  on  by  the  United  States  Supreme  Court  in  the 
Chicago  case,  the  mortgage  will  probably  be  declared  invalid  and  the 
land  dedicated  to  the  purposes  expressed  in  the  act.  But  the  mortgage 
m.ay  be  held  void,  while  the^debt  is  declared  valid,  and  the  burthen  of 
showing  it  otherwise  rests  on  the  company.  Here  then  are  over 
twelve  millions  more  of  good  reasons  why  you  should  adopt  a  different 
corporate  organization  from  the  Central  Pacific  and  why  Mr.  Hun- 
tington on  the  other  hand  should  dissuade  you  from  doing  so,  and 
advocate  a  blanket  mortgage  and  keeping  up  the  old  organization. 

To  avoid  prolixity,  I  have  confined  myself  in  this  communication 
to  matters  involving  sums  of  magnitude  and  importance;  but  there 
are  many  other  reasons  why  it  is  unsafe  for  you  to  make  title  to  the 
Central  Pacific  Company's  property  except  through  a  foreclosure, 
which  will  clear  the  title.  These  will  naturally  occur  to  your  counsel 
when  he  is  called  on  to  consider  and  advise  on  your  coarse  in  that 
respect. 

I  am,  gentlemen,  respectfully,  your  obedient  servant, 

JOHN  T.  DOYLE. 

San  Francisco.  Sept.  21,  1898. 


Si  0  0-J" 


